Why Vonage Mobile Is Too Little, Too Late

vonageiphoneVonage, a Holmdel, N.J.-based VoIP services provider, today unveiled a line of apps for the iPhone, iPod touch and BlackBerry. Once a pioneer of VoIP, the company has fallen out of favor over the past few years in the face of competition from cable companies and their voice offerings. The release of its apps, collectively dubbed Vonage Mobile, is being viewed as a chance for Vonage to regain its luster. Unfortunately, it’s too little, too late.

A lot of the focus this morning has been on Vonage Mobile’s ability to use AT&T’s cellular network to make phone calls when out of range of Wi-Fi. The New York Times and the Associated Press have pointed out that Apple approved Vonage while it has put the Google Voice app on the back burner.

That’s likely because the Vonage line of apps doesn’t take over the iPhone user experience by trying to replace the voice mail functionality the way Google Voice does. (I haven’t seen the Google Voice for iPhone app, but on Android it completely takes over the calling experience, as I pointed out in my post, Meet Google, Your Phone Company.) Regardless, this focus on Google Voice is short-sighted. The bigger issue is that Vonage face a steep uphill climb in the mobile world. For rather than adjusting its business to include the mobile market at the same time as the rest of the world, it just sat there, married to its old, fixed-broadband calling model. Meanwhile, upstarts such as Truphone and Nimbuzz were founded for the express purpose of tapping into such an opportunity.

“Our new mobile app is an important step in establishing Vonage as a software technology company that enables high-quality voice and messaging across any device in any location, providing great value over any broadband network,” said Marc Lefar, CEO of Vonage, in a press release. Despite Lefar’s brave words, however, Vonage is far from being a software technology company.

Rather it’s nothing more than a seller of cheap minutes, no different than a supplier of calling cards to the local bodega. It received a delisting notice in October 2008 after its shares fell to under a $1 each (they’ve since climbed back above that threshold). In its latest fiscal period, it reported $334 million in assets and $442 million in liabilities and net income of $1 million. It’s losing subscribers by the month — 89,000 lines in the most recent quarter.

When I see Vonage, I see the telecom equivalent of a talented minor league baseball prospect with a drinking problem. Or a quarterback with a bum knee, trying to see if he can win that one last game. Unfortunately, that stuff happens only in the movies, and as we all know, life isn’t a movie.

And while Vonage claims its service saves customers more than 50 percent on calls to some dozen countries vs. rates charged by phone carriers, Skype and others offer better deals. Vonage will have a hard time getting any traction, especially against the Skype juggernaut. Even on the BlackBerry platform, it will face a significant challenge from Google Voice, which I still think is the best non-carrier calling option.

Last month, when I was talking to Josh Silverman, CEO of Skype, he told me that more than 4 million copies of Skype had been downloaded on the iPhone and iPod touch devices, making Skype one of the most popular apps in the iPhone store. And like me, many of those 4 million people have already established a billing relationship with Skype by buying cheap minutes to make phone calls overseas. It’s too much work for me to switch to Vonage at this point.

I was burned by the bad quality on Vonage about two years ago and haven’t bothered with the service since. I’ve heard of many others that have had a similar experience. In comparison, Skype is a better-known brand. With 480 million subscribers, Skype has a much bigger pond in which to fish for mobile customers. Unless Skype’s co-founders kill their own creation, Vonage is climbing a glass wall to nowhere.